Upstream Investor Day & Fieldtrip - Oman 2018 - BP
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Track record
Oman 2018
Upstream
Investor Day
& Fieldtrip
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 1
1
Cautionary statement
In order to utilize the ‘safe harbour’ provisions of the United States Private Securities Litigation Reform Act of 1995 (the ‘PSLRA’) and the general doctrine of cautionary statements, BP is
providing the following cautionary statement: The discussion in this results announcement contains certain forecasts, projections and forward-looking statements - that is, statements related
to future, not past events and circumstances - with respect to the financial condition, results of operations and businesses of BP and certain of the plans and objectives of BP with respect to
these items. These statements may generally, but not always, be identified by the use of words such as ‘will’, ‘expects’, ‘is expected to’, ‘aims’, ‘should’, ‘may’, ‘objective’, ‘is likely to’,
‘intends’, ‘believes’, ‘anticipates’, ‘plans’, ‘we see’ or similar expressions. In particular, the following, among other statements, are all forward looking in nature: expectations regarding BP’s
potential beyond 2021; plans and expectations with respect to Khazzan, including high-quality growth potential; plans and expectations to deliver $14 to $15 billion of pre-tax free cash flow at
$55 per barrel in 2021; plans and expectations to grow operating cash flow within a disciplined capital frame, to grow sustainable free cash flow and distributions to shareholders; estimates of
the amount new projects will contribute to segment operating cash flow by 2021; plans and expectations with respect to a low-carbon future, including levels of worldwide carbon emissions;
expectations regarding world energy growth, including for energy needs to increase by 20-30% by 2040 and the balance of demand between renewable and non-renewable sources;
expectations with respect to future oil and gas supply and demand; plans and expectations to deliver 900 million barrels of oil equivalent of new production from new upstream major projects
by 2021, including a contribution of around 550 million from projects that have already started up, with less capital than initially envisaged; expectations regarding discovered resources and
resource potential; plans and expectations to start up 16 new projects by 2021; expectations regarding Upstream 2018 production, plant reliability, production costs and managed base
decline; expectations that 75% of BP’s cash cost reductions delivered to date are sustainable and for costs to broadly flatten; plans and expectations to create a major new gas hub in
Mauritania and Senegal and to build a material position in Brazil including through Peroba and Cabo Frio; plans and expectations regarding production growth and future options in the Gulf
of Mexico, North Sea, Angola and AGT Oil, including for this production to generate over 70% of pre-tax free cash flow in 2018; plans and expectations for BP and its partners to drill 4 wells
over the next three years in Brazil and to conduct play tests in Azerbaijan; plans and expectations regarding gas growth, including domestic pricing, hub pricing and international LNG and
liquefaction capacity; plans and expectations regarding pre-tax operating cash flow in 2025 and production growth to 2025 and beyond; and expectations that BP will meet or exceed guidance
set out in 2021 including a scenario to increase pre-tax free cash flow by 40 to 50% over 2021 guidance. By their nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will or may occur in the future and are outside the control of BP. Actual results may differ materially from those expressed in such
statements, depending on a variety of factors, including: the specific factors identified in the discussions accompanying such forward-looking statements; the receipt of relevant third party
and/or regulatory approvals; the timing and level of maintenance and/or turnaround activity; the timing and volume of refinery additions and outages; the timing of bringing new fields
onstream; the timing, quantum and nature of certain divestments; future levels of industry product supply, demand and pricing, including supply growth in North America; OPEC quota
restrictions; PSA effects; operational and safety problems; potential lapses in product quality; economic and financial market conditions generally or in various countries and regions; political
stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; regulatory or legal actions including the types of enforcement action pursued and
the nature of remedies sought or imposed; the actions of prosecutors, regulatory authorities and courts; delays in the processes for resolving claims; amounts ultimately payable and timing
of payments relating to the Gulf of Mexico oil spill; exchange rate fluctuations; development and use of new technology; recruitment and retention of a skilled workforce; the success or
otherwise of partnering; the actions of competitors, trading partners, contractors, subcontractors, creditors, rating agencies and others; our access to future credit resources; business
disruption and crisis management; the impact on our reputation of ethical misconduct and non-compliance with regulatory obligations; trading losses; major uninsured losses; decisions by
Rosneft’s management and board of directors; the actions of contractors; natural disasters and adverse weather conditions; changes in public expectations and other changes to business
conditions; wars and acts of terrorism; cyber-attacks or sabotage; and other factors discussed elsewhere in this report, under “Principal risks and uncertainties” in our results announcement
for the period ended 30 June 2018 and “Risk factors” in BP Annual Report and Form 20-F 2017 as filed with the US Securities and Exchange Commission.
This document contains references to non-proved resources and production outlooks based on non-proved resources that the SEC's rules prohibit us from including in our filings with the
SEC. U.S. investors are urged to consider closely the disclosures in our Form 20-F, SEC File No. 1-06262. This form is available on our website at www.bp.com. You can also obtain this form
from the SEC by calling 1-800-SEC-0330 or by logging on to their website at www.sec.gov.
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 2
2
Track record
Upstream Investor
Day & Fieldtrip
Oman 2018
Bernard Looney
Upstream
Chief Executive
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 3
Welcome to Oman. And thank you all for coming. I think everyone has travelled so
we especially appreciate that. Over the next two days we will share the progress
we have made since we set out our plan in Baku in 2016.
In many ways it was an easy decision to host this event in Oman. Our business
here at Khazzan exemplifies our strategy:
• early, bold access;
• strong execution leveraging technology, as well as learning from across BP, and
• material growth potential.
You will hear more from Michael Townshend tomorrow, and we are excited to
show you the Khazzan field and facility. Thank you to Michael and the local team
for hosting.
3
Introduction
Upstream
key messages
Continued track record of delivery
1 ▪ continued safety progress
▪ 19 projects delivered on average under budget and ahead of schedule 1
▪ 45% reduction2 in unit production costs
▪ base decline below 3-5% guidance
Free cash growth underpinned
2 on plan for $14-15bn3 in 2021
Improved growth capacity
3 upgraded resource base, high quality investment opportunities
Transformation building momentum
4 tangible impact, more to come
(1) Since 2016
(2) 2018 estimate, compared with 2013
(3) Pre-tax free cash flow proxy = underlying RCPBIT+DD&A+EWO-organic
capital expenditure, at $55/bbl Brent 2017 real BP UPSTREAM INVESTOR DAY AND FIELDTRIP 4
Let me start with four key messages that we will keep coming back to over the
next two days.
First is our “continued strong track record of delivery”. Doing what we said we
would. And doing so competitively.
Starts of course with safety where we continue to make progress, and we always
have more to do;
• 19 major projects delivered since 2016 – on average under budget and ahead
of schedule;
• Improving drilling performance;
• Improving operating efficiency;
• 45% reduction in unit production costs;
• And base decline managed to below 3%;
In summary, we have grown production on average 7% per annum since 2016,
grown margins and created the space to absorb the onshore Lower 48 BHP
portfolio within our existing capital framework
Second, we are on plan to deliver the 2021 free cash flow growth target. We first
laid it out two years ago in Baku. We have twice upgraded the target since then –
once in 2017, and again just this year. We expect to deliver $14 to $15 billion of
pre-tax free cash flow in 2021 at $55 per barrel real prices.
Third, we have improved both our capacity to grow, and the quality of that growth.
We have high-graded our portfolio, including through our acquisition of BHP’s
Lower 48 assets. Our execution performance continues to improve the quality of
the options. Overall, we have seen an improvement in the returns of post 2021
investment by close to 5% since we last spoke to you. This leads to a suite of
high-quality investment opportunities, and more than enough capacity to continue
4
to grow into the next decade. As a reference, between 2018 and
2021 we expect to sanction around 30 projects – including up to 10
this year.
Fourth and finally, underpinning all of this is our transformation
agenda. We are delivering billions of dollars of value. Excitement and
expectations are building. And we are far from done. We believe
passionately in the potential of this agenda, as well as the need for it.
Not just in the Upstream – but in our sector.
4
Introduction
BP strategy
Growing Market led Venturing and
advantaged oil growth in the low carbon
and gas in the Downstream businesses
Upstream across
multiple fronts
Modernising the whole group
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 5
Before we move to the Upstream agenda, I would like to take a moment to
remind you of the BP Group strategy.
It is based on four, clear strategic priorities, which together embrace the energy
transition and shape how we continue to create shareholder value in this rapidly
changing world.
These priorities are:
• Growing advantaged oil and gas in the Upstream;
• Pursuing market-led growth in the Downstream;
• Investing in low-carbon technologies and businesses and reducing carbon
emissions across all our businesses, and
• Modernising the whole of BP to make us safer, more efficient and more
competitive.
Delivery of our strategy underpins our proposition to you, our investors. And
central to this proposition is our goal of growing operating cash flow within a
disciplined capital frame, leading to growing sustainable free cash flow and
distributions to shareholders over the long-term.
Over the next 48 hours you will hear how we are supporting that through our
Upstream strategy, namely:
• Quality execution;
• Growing advantaged oil and gas, and
• Returns led growth.
5
Introduction
The dual challenge
Society’s need for
More Lower greenhouse
energy gas emissions
▪ Increasing population ▪ Need to fall by ~50% by 2040
and prosperity expected to to be on track to meet Paris
increase demand ~20-30% climate goals
by 2040
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 6
Before that – a few words on how we are approaching the energy transition, and
the shift we are seeing to a low-carbon global economy. And in particular, how we
think about it in the Upstream.
Within BP, we approach this transition in terms of the dual challenge facing the
global energy system.
First, carbon emissions need to fall significantly over the next 20 years, of the
order of 50% or so by 2040, to be on a path consistent with meeting the Paris
climate goals. We all have a role to play in lowering emissions – governments,
consumers as well as companies like BP. Yet on current trends, emissions are
likely to continue to edge upwards for much of the next 20 years.
We are committed to playing our part, and have introduced our RIC framework.
Reduce – our own emissions, Improve – our products so that our customers can
reduce their emissions, and Create – new low carbon businesses. I will speak
more about the Upstream actions in Reduce later.
Second - the other part of the dual challenge - the world needs more energy to
continue to grow and prosper – we estimate an increase of somewhere between
20-30% by 2040. The majority of this additional demand comes from the
emergence of a growing middle class in Asia, with around two and a half billion
people set to be lifted from low to middle incomes over the next 20 years.
6
Introduction
More energy – advantaged oil and gas
Projected oil demand1 Projected gas demand2
mmbd bcfd
120 Natural gas LNG
Evolving 600
transition
100
Even faster
80 transition
400
60
Supply with no
40 investment
(3% decline rate) 200
20
0 0
1970 1980 1990 2000 2010 2020 2030 2040 2016 2040
(1) Source: BP Energy Outlook 2018, oil demand in selected scenarios
(2) Source: BP Energy Outlook 2018, evolving transition scenario BP UPSTREAM INVESTOR DAY AND FIELDTRIP 7
Renewables, like wind and solar, are expected to continue to be the fastest
growing form of energy over this period and will play an important part of both
meeting this rising demand while also helping bring down emissions.
After renewables, gas is the fastest growing fuel across a wide range of
scenarios.
And – in almost every scenario - oil and gas together are forecast to represent
greater than 40% of the energy mix in 2040.
So, what does this mean specifically for the Upstream? How do we think of this
as we invest, and how are we ensuring we create and protect shareholder value?
The answer to this is possibly best explained using data.
Today, global oil demand totals around 100 million barrels per day.
Our Energy Outlook this year provides some scenarios that help us think about the
future.
Based on current trends, our ‘Evolving Transition’ scenario – the dark green line -
shows oil demand increasing to around 110 million barrels per day by 2040.
Under the ‘Even Faster Transition’– the light green line - a scenario which sets a
trajectory consistent with meeting the Paris climate goals, the world still
consumes around 80 million barrels per day.
However, there are those who believe the answer is to stop investment and
remove oil and gas from the energy equation. Such a scenario is ‘supply with no
investment’ – the grey line. Zero investment in oil from today, and a very modest
or conservative decline rate of 3% per year. In this case, the world would be able
7
to supply only around 45 million barrels per day.
There is clearly a gap. Many have estimated what investment levels
are required to close that gap – and it is significant – trillions of
dollars. So, how do we ensure our Upstream investments are
investments that help fill that wedge? Helping the world with the
energy it needs – while at the same time meeting the Paris goals.
Some – including those of you in this room - have tried to calculate
what oil price is needed to sustainably produce 80 million barrels per
day. The truth is we don’t know. There are above ground challenges,
as well as simple cost of supply charts.
What we do know however is – even in a scenario consistent with
meeting Paris goals:
• there will be demand for oil, and especially gas;
• there will be an industry;
• and the winners will be those who have the greatest resilience
and flexibility.
In the Upstream – we believe we are well placed for this evolving
world through our focus on the following:
• Advantaged resources - barrels that are low cost or high-margin,
with low break-evens. And within this – we acknowledge that not
all our resources are advantaged today, for example heavy oil or
ultra-deep opportunities. We continue to screen all options over
time while minimising holding costs;
• Capital discipline – rigorously sticking to our investment hurdle
rates of mid-teens for greenfield, and greater than 20% for
brownfield – at an oil price of $60 per barrel;
• Balance or diversification - exposure to different pricing regimes,
contract structures, geographies, markets, short versus long-cycle
capital commitments, and a mixture of oil and gas, and finally;
• Flexibility – the ability to ramp up and ramp down capital
investment – which has been improved through the BHP
transaction.
7
Track record
Track record
of delivery
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 8
8Track record
Improving safety and reducing emissions
1
Process safety events (PSE) >50 projects, delivering >1.5 MteCO2e
number of instances of sustainable emissions reductions to date
PSE Tier 1 PSE Tier 2
150
100 Reduced flaring in Angola Alaska compressor
Block 18 electrification
>0.7 MteCO2e ~0.16 MteCO2e
50
Gulf of Mexico supply BPX Energy Lower 48
0 vessel efficiency methane reductions
2010 '11 '12 '13 '14 '15 '16 '17 2018 ~0.03 MteCO2e ~0.05 MteCO2e
YTD
(1) Million tonnes of CO2 equivalent BP UPSTREAM INVESTOR DAY AND FIELDTRIP 9
Let me turn now to our first key message and that of our track record.
Starting with safety – our core value.
You can see the progress we have made in process safety – with reductions in
our tier one and two events.
We have also continued to reduce the number of people hurt in our business.
The results are encouraging – but there is always more to do. We can never be
complacent. This is about caring about our people and protecting our assets.
We are also making good progress on reducing our emissions – part of the RIC
framework I mentioned earlier.
We have clear targets for the company and our teams are energized, and in action.
The examples on the slide – from Angola to Alaska – are sustainable reductions in
our CO2 emissions. Good for the environment and good for business.
9Track record
Improving base performance
Production Plant reliability1 Production costs Managed base decline2
mmboed % $/boe %
2.6 96 14 5
45% Guidance
reduction 3-5%
1.8 88 0 0
2013 '14 '15 '16 '17 2018 2013 '14 '15 '16 '17 2018 2013 '14 '15 '16 '17 2018 2011-2016 2012-2017 2013-2018
est est est est
(1) BP-operated plant reliability
(2) 5-year compound annual decline rate BP UPSTREAM INVESTOR DAY AND FIELDTRIP 10
Turning to our base business - we aspire to be the best operator in each basin that
we operate.
Together with our shareholding in Rosneft, BP’s production in 2018 is expected to
be over 3.6 million barrels of oil equivalent per day. Production has grown on
average 7% per annum since Baku in 2016 – well ahead of our 5% CAGR
guidance.
We continue to improve overall plant reliability – currently running at close to 96%.
Reliability in the North Sea has improved more than 10% from 2013 to today.
We also focus on the overall operating efficiency of the production process – all
the way from the well to the export route – not just the plant. This was 77% in
2013 and is now over 83% - a record level. We believe we can continue to
improve.
We have driven our unit production costs down - 45% reduction since 2013.
And finally, we are continuing to manage our base decline to below 3%, helped
enormously by our digital agenda.
You will hear more about all of this in the breakout with Gordon, Leigh Ann and
Ian.
10Track record
Improving capital productivity
Mad Dog Phase 2
Drilling efficiency drilling performance Projects cost Projects schedule
% top quartile offshore wells1 days/10k ft drilled1 IPA2 ratio IPA2 ratio
80 60 1.5 1.5
1st 2nd 3rd
quartile quartile quartile
1.2 2017 industry average 1.2
2017 industry average
Mad Dog
Phase 2
BP-operated 0.9 0.9
Last 4 2018
wells drilled
0.6 0.6
0.3 0.3
0 0 0 0
2013 '14 '15 '16 '17 2018 Individual wells drilled in the Green 2013 '14 '15 '16 '17 2018 2013 '14 '15 '16 '17 2018
YTD Canyon subsalt by all operators1 YTD YTD
(1) Source: IHS Rushmore
(2) Independent Project Analysis, a lower ratio indicates lower costs and schedule vs. IPA industry models, UIBC industry average BP UPSTREAM INVESTOR DAY AND FIELDTRIP 11
We also continue to improve the execution of our capital activity. Capital
productivity remains “the” lever in our industry. Here, our functional model,
specifically our global wells and global projects organisations, is delivering.
In drilling, over 70% of our offshore wells are now top quartile. From 25% just five
years ago. And during the same period, our percentage of non-productive time for
completions has reduced by around 30%.
Mad Dog 2 is a great example of our drilling performance. The chart shows how
many days it has taken to drill ten thousand feet for wells drilled in Green Canyon
by all operators. The green bars are BP. You can see three of our last four wells
are the best ever drilled.
We are also continuing our strong track record of major project delivery.
The metrics on the chart from the Independent Project Analysis show we are
sanctioning projects better than the industry average on cost and schedule. And
we are continuing to improve year on year.
And it is not just sanctioning them – we are delivering these projects on average
under budget and ahead of schedule.
11Track record
Delivering major projects
Major project start-ups: 2016 2017 2018
UK
Alaska ▪ Quad 204
▪ Point ▪ Clair Ridge
Thomson
Russia
▪ Taas Expansion
US Gulf of Mexico Algeria Azerbaijan
▪ Thunder Horse ▪ Shah Deniz 2
▪ In Salah
Water Injection
Southern Fields
▪ Thunder Horse
▪ In Amenas
Oman
South Expansion ▪ Khazzan
Compression
▪ Thunder Horse North Phase 1
West Expansion
Egypt
Trinidad
Angola ▪ West Nile Delta
▪ Trinidad ▪ Angola – Taurus/Libra Australia
Onshore LNG ▪ Persephone
Compression ▪ Zohr
▪ Western Flank B
▪ Juniper ▪ Atoll Phase 1
▪ West Nile Delta
– Giza/Fayoum
Projects on average under budget and ahead of schedule
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 12
We have started up 19 Major Projects in the last three years.
The projects we have started up and are progressing range in size, scope,
complexity and geography. From deepwater Gulf of Mexico to Shah Deniz 2 in
Azerbaijan, with pipelines spanning six countries. From the desert here in Oman –
one of the world’s largest greenfield unconventional developments – to LNG off
the West African Coast. From the jungle in Papua to the harsh environment of the
West of Shetland.
We like having the capability to take on these challenges – and as the industry
evolves – we believe it is increasingly distinctive.
But there is still room to improve. More to do. We can and must get better. Dave
and Andy – our Head of Global Wells Organisation – are already working on the
next steps to drive further improvement. You will hear from Dave and James later.
12Track record
Transformation
creating billions of dollars of value
Production Transforming Digital Fast paced
digital twin inspections models tie-backs
Apex, and the rest of Improving safety and Digital models Mindset and agile
the BP production saving $200m on reducing offshore ways of working on
toolkit, adding over surface and subsea visits, saving Trinidad Gulf of Mexico
30mboed in 2018 inspection since 2016 $450k in 3 months projects reducing time
from concept to
design by 10 months
Agility Digital Mindset
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 13
Our transformation agenda is starting to bite. We think of it through the lenses of
Digital, Agility and Mindset.
We now have around 1,000 projects across the Upstream aimed at sustainably
improving both performance and how it feels to work in the Upstream.
Some are still in the idea phase, but the majority are in action, with a growing
number already executed.
We have spoken with you about APEX in the past, our production digital twin.
APEX is no longer a Minimum Viable Product. It has been deployed across all of
our major operated fields within two years. You will get a chance to see it in action
in one of the breakouts. Apex is just one part of our production digital toolkit which
collectively has added over 30 thousand barrels of oil equivalent per day this year
alone.
In operations, we are putting fewer people in harms’ way to complete inspection
activity through deployment of technology such as drones, crawlers and ROVs.
We have already reduced our surface and subsea inspection costs by $200 million
since 2016.
In Trinidad we are using the latest digital modelling technology, think 3D
visualisation of our offshore facilities. This allows us to complete detailed activity
planning on our normally unmanned installations without having to go offshore.
Improving safety through reduced visits, saving $450 thousand so far.
In the Gulf of Mexico, our project teams have been using our latest agile ways of
working and challenging themselves to bring our new subsea tie-backs on line
quicker, “Fast Paced Tie-backs” as they now call them. They are making good
progress with seven tie-backs either in execute or operate with an average 10-
month improvement in cycle time.
13Overall, I am excited about what’s possible through the agenda.
To accelerate Digital further – we are creating a new Digital Function
which will stand alongside our Operating Functions. Digital is going to
be as important a capability in our industry as knowing how to drill a
well. We have made progress, but I am keen that we move faster.
This new function, and hence increased focus, will help.
Agility is a potential game changer in organisational productivity and
engagement and we are just getting started. It is about our ability to
work across disciplines, with less hierarchy, tackling tangible
business problems with structure, rigor and faster decision making.
The intent is clear – we are going Agile.
And Mindset remains the holy grail – a must do. There are six
specific things that we are dialling up in the way we think and
approach issues. For example – honesty. We want more objective
assessments of performance, less stories.
Ian will give you more on all of this in the breakout.
13Track record
Reducing breakeven, while capturing price upside
Upstream unit operating cash flow3
Upstream breakeven1 vs Brent price 2014-2018
$/boe $/boe
BP (excl Rosneft) Competitor range2 BP (excl Rosneft) Competitor range2
35
30
25
20
15
10
5
0
2014 2015 2016 2017 2018 YTD 40 50 60 70 80
Brent price $/bbl
(1) Brent oil price post-tax proxy free cash flow / Brent post-tax rule of thumb. Post-tax proxy free cash flow = Upstream net income+DD&A+EWO–capital expenditure
(2) Competitor range: Exxon, Shell, Chevron, Total, Equinor and Eni
(3) Post-tax operating cash flow / boe = (net income+DD&A+EWO) / production BP UPSTREAM INVESTOR DAY AND FIELDTRIP 14
Our performance track record is showing up in the bottom line – as seen in these
two charts.
The chart on the left shows Upsteam’s breakeven oil price compared to our
competitors. All estimated based on external disclosure. We continue to bring
down the breakeven of our business, and it is now the lowest of our peers.
The trend line on the right shows our delivery of unit operating cash, against
different prices over the last few years.
It shows that we are capturing among the highest cash per barrel of our peers at
low prices. And that we are competitive at higher prices – perhaps higher than you
would have thought.
These charts, I hope, help demonstrate the resilience of our business, as well as
the price exposure and leverage.
14Track record
2021
guidance
underpinned
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 15
152021 underpinned
Focusing on the base
Production Production costs1
mmboed $/boe
BP (excl Rosneft) Competitor range
BPX Energy Lower 48
L48
Major projects
Major Projects
L48 Managed baseMajor Projects
2021 est
Managed Base
3-5% managed Production
base decline
Managed Base growth
Managed Base
excluding BPX Energy from major projects
and BPX Energy
2013 '14 '15 '16 '17 2018
est
(1) Includes fuel gas; competitor range: Shell, Exxon, Chevron, ENI, Equinor, Total BP UPSTREAM INVESTOR DAY AND FIELDTRIP 16
Let’s now move to the second key message. Our track record increases our
confidence in the delivery of our plan to 2021.
I showed you our base decline track record earlier.
Because of the increased investment and growth in the Lower 48 through BPX
Energy, we are removing this from our base decline guidance going forward.
This should in theory result in a deterioration in base decline guidance.
However, because of underlying performance, we are maintaining our guidance of
3-5%.
Growth, sitting on top of the 3-5% decline, will come from our major projects, and
now BPX Energy.
We have made significant progress in the reduction of our unit production costs –
down around 45% from 2013.
We expect costs to broadly flatten, adjusting for the addition of BHP’s assets.
2019 rates are difficult to accurately forecast as they will be impacted by
divestment timing, the integration of BHP’s Lower 48 assets, and the pace of
delivery of the synergies in BPX Energy.
Overall, our focus is on changing the way we work – through transformation. This
will help offset any inflation and we will always aspire to continue to drive further
unit cost reduction.
162021 underpinned
Major projects – on track
BP net production from major projects 19 delivered, 16 to go
operating construction appraise/design 2016 2017 2018
1,000 mboed ▪ In Salah Southern Fields ▪ West Nile Delta ▪ Atoll Phase 1
– Taurus/Libra
▪ Thunder Horse Water ▪ Taas Expansion
Injection ▪ Trinidad Onshore
▪ Shah Deniz 2
Compression
▪ Point Thomson
▪ Thunder Horse
▪ Quad 204
▪ Angola LNG North West Expansion
▪ Persephone
▪ In Amenas Compression ▪ Western Flank B
▪ Juniper
▪ Thunder Horse ▪ Clair Ridge
South Expansion ▪ Khazzan Phase 1
▪ West Nile Delta
▪ Zohr – Giza/Fayoum
2019 2020 2021
▪ Constellation ▪ KG D6 R-Series ▪ Mad Dog Phase 2
0 ▪ Angelin ▪ Tangguh Expansion ▪ Khazzan Phase 2
2015 2016 2017 2018 2019 2020 2021 ▪ Culzean ▪ Alligin ▪ KG D6 Satellites
900mboed 35% 20%
▪ West Nile Delta – Raven ▪ Vorlich ▪ Manuel
▪ Zinia 2 ▪ Cassia Compression
▪ Atlantis Phase 3
by 2021 greater cash margins lower development
than 2015 base1 cost than 2015 base
FIDs2 2016: 6 2017: 3 2018: 9 2019-2021: ~20
(1) 2016-2025 average pre-tax operating cash flow per barrel at flat $52/bbl (2) FID: final investment decision BP UPSTREAM INVESTOR DAY AND FIELDTRIP 17
Moving to our projects, we remain on track for 900 thousand barrels of oil
equivalent per day from our projects in 2021.
Only two projects have yet to have the final investment decision made – the rest
are in construction or operation. And those that have started up are expected to
produce around 550 thousand barrels of oil equivalent per day in 2021.
We expect to deliver this plan with around $15 billion less capital than we
envisaged when we first set out our plans. That’s around 25% less capital.
By 2021, these projects should contribute over one-third of segment operating
cash flow.
As well as 35% higher cash margins, these projects are expected to have at least
20% lower development cost than the base business had in 2015. This is
advantaged oil and gas.
172021 underpinned
2021 free cash flow growth underpinned
Pre-tax free cash flow1 2021 guidance
$bn
estimated impact of 2018 prices Production >5% CAGR2
Organic capital
$13-14bn
$14-15bn expenditure
Major projects
900mboed3
production
Unit production
Flattening 2018+
costs
Base decline4 3-5% excluding BPX Energy
Pre-tax free
$14-15bn
cash flow1
2016 2017 2018 2021
(1) Pre-tax free cash flow proxy = underlying RCPBIT+DD&A+EWO-organic capital expenditure, at $55/bbl Brent 2017 real. 2016 and 2017 at actual prices
(2) 2016-2021 compound annual growth rate (3) Production from new major project start ups 2016-2021 (4) 5-year compound annual decline rate BP UPSTREAM INVESTOR DAY AND FIELDTRIP 18
I hope this demonstrates why we are confident in our guidance to 2021. Our plans
are fully underpinned.
Proxy free cash flow of $14-15 billion at $55 per barrel real.
All while remaining within our $13-14 billion of capex guidance, including
absorbing the impact of increased capital into BPX Energy. Evidence of our capital
discipline and increased capital productivity.
18Track record
High-quality
long-term
growth
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 19
19Long-term growth
High-quality growth capacity
Resources 50
bn boe
Non-proved resources3 ▪ ~11bn boe of proved volumes
25 ▪ ~14bn boe of high-quality discovered resource we
4
1 expect to progress in our plan
Pre-FID ▪ Includes ~9bn boe of new well investment in
Post-FID projects
major existing hubs (conventional and US onshore)
5
projects
▪ Highly capital efficient, flexible pace, fast
BPX Energy payback
4 Lower 48
▪ ~5bn boe from major projects
11 New wells
▪ Tested against hurdle rates (mid-teens or
higher IRR %) as projects progress to sanction
▪ Includes ~1bn boe of non-proved resources
from already sanctioned projects
Proved1 2 Total plan Total
volumes resource
(1) Includes BP’s share of reserves of equity-accounted entities in the Upstream segment hopper
(2) Proved reserves shown are the reported year end 2017 estimate
(3) Non-proved resources are the year-end 2017 estimate, updated for significant movements in 2018 BP UPSTREAM INVESTOR DAY AND FIELDTRIP 20
I now want to lengthen our stride and look to the middle of the next decade. Can
we continue to grow while maintaining our focus on value and quality?
The foundation is a high-quality resource base. We include around 25 billion
barrels of discovered resources, proved and non-proved, in our forward plan.
Out of that total resource, over 40% is already booked as proved. The 11 billion
barrels on the chart.
Another circa 35%, around nine billion barrels, is from base management, new
wells in our conventional reservoirs, and our BPX Energy acreage. These
opportunities leverage existing infrastructure, are very capital efficient, are flexible
and have quick paybacks.
The final circa 20% is from major projects. Those that have been sanctioned, or
have yet to be sanctioned and have or are expected to meet our hurdle rates.
20Long-term growth
Next wave of growth options
Alaska UK
▪ Liberty ▪ Seagull
▪ Clair SW
Russia
▪ Kharampur
Aker BP (Turonian)
US Gulf of Mexico
▪ Thunder Horse South Mauritania
Expansion 2 & Senegal
Azerbaijan
▪ Thunder Horse BPX Energy ▪ Tortue Phases 1-3
▪ Azeri Central East
Shallow ▪ Yakaar Teranga
▪ Shah Deniz Compression
▪ Atlantis Phase 4&5 ▪ BirAllah
▪ Atlantis Water
Injection Expansion Egypt
▪ Maadi
▪ Mad Dog North West
Hub
Water Injection
Angola ▪ Satis India
▪ Mad Dog South West Trinidad ▪ KG D6 D55 Australia
Expansion ▪ Matapal ▪ Block 31 PAJ ▪ Lambert Deep
(Savannah) ▪ Block 18 Platina ▪ South Goodwin
▪ Juniper
Follow-on ▪ Browse
▪ Cypre
(Macadamia) PAEG
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 21
The map describes the next wave of potential major projects.
These include several opportunities around our existing hubs which highlight the
continued strength of our existing basins. For example – you will notice 6 new
major projects in the Gulf of Mexico – all of which take advantage of existing
infrastructure and have strong returns. More on that later. We see similar
opportunities in high margin oil regions of the North Sea, Angola and Azerbaijan.
In Trinidad and Australia – we are focused on keeping the existing LNG
infrastructure full. In Mauritania and Senegal – we have the potential to create a
major new LNG hub. There are potentially 50 – 100 trillion cubic feet of resources
in this new basin where we have established a large acreage position with high
equity.
Finally - we continue to grow our position in Russia. BP continues to benefit from
our strategic shareholding in Rosneft, where we see the benefit of improving
performance and growing dividends. In the Upstream we continue to progress our
joint ventures with Rosneft to access some of the huge resource potential the
country has to offer.
21Long-term growth
Successful year of access
UK
Canada
Azerbaijan
US onshore
US Gulf of Mexico Egypt
Mexico
São Tomé
& Príncipe Madagascar
Brazil
Australia
4.6bn boe net premium US onshore assets accessed 8bn boe net exploration resource potential accessed
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 22
When we were in Baku in 2016, many of you highlighted two potential gaps in our
portfolio – notably Lower 48 liquids, and Brazil.
Since then – we have completed the BHP transaction – 4.6 billion barrels – setting
up the potential to create a new 150-200 thousand barrels per day oil hub. And in
Brazil – we are now the second largest exploration acreage holder in the PSC
Santos Basin.
We focus on low cost access with minimal financial commitments – Sao Tome
and Principe and Cote d’Ivoire being two examples.
We also – where possible – leverage our incumbent relationships and knowledge
in places like Azerbaijan and the Gulf of Mexico.
We have accessed around eight billion of exploration potential in the past year.
22Long-term growth
BPX Energy - improved value creation potential
Acquisition of BHP’s US onshore assets
Attractive NPV1 and near-term value delivery $bn
$65 WTI
$3.25 HH
Further upside
potential
Base case $55 WTI
$2.75 HH
Midstream $45 WTI
$2.25 HH
$10.5bn Upstream
Purchase price BHP assets Synergies Capital efficiency Additional resource Environment
potential
(1) NPV = net present value at 10% discount rate, $55/bbl WTI, and Midland discount of $7/bbl near term and around $2/bbl longer term, $2.75/mmBtu Henry Hub (2018 real). Indicative values only
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 23
Next, to the BHP transaction. We laid out the value potential you see here in July.
The valuation looks just as good today as it did then. And likely better.
As Dave and his team spend more time with these assets, we are confident of
delivering the synergies.
We continue to see material upside potential through capital efficiency, and over
time we will exploit additional resource potential from zones that were not in our
base case.
You will hear much more from Dave and Brian over lunch.
23Long-term growth
High impact exploration
Brazil Azerbaijan West Africa
Giant oil potential Giant oil and gas prospects New country access
D230
MAURITANIA
BRAZIL Jacutinga
Cabo Frio Gobustan SENEGAL
Tramandal
AZERBAIJAN
ACG
SWAP Shah
Deniz
Peroba Pau COTE D’IVOIRE
Shafag
Asiman SÃO TOMÉ & PRÍNCIPE
▪ Second largest exploration acreage ▪ ~7,000km2 acreage ▪ ~80,000 km2 new exploration
holder in PSC pre-salt oil play ▪ Super-giant gas prospect at Shafag acreage
~8,000km2 acreage Asiman and deepening test at Shah ▪ Mauritania & Senegal (2016), Cote
▪ Several prospects with super-giant Deniz d’Ivoire (2017) and São Tomé &
oil field potential ▪ Advantaged oil potential at SWAP Príncipe (2018)
and D230
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 24
Over the next two years we have an extensive exploration drilling program that
spans 13 countries, testing over six billion barrels. It is balanced between oil and
gas.
There are three opportunities I want to highlight.
First, Brazil.
BP and its partners intend on drilling four wells over the next three years testing a
potential one to two billion barrel net resource. The first of these wells Peroba
spudded in October and is being drilled by our partner Petrobras.
Second, Azerbaijan.
It is a core production region for BP and sits within the prolific South Caspian
basin.
During the next few years, we have some big play tests in Azerbaijan in Shafag
Asiman, D230, SD3 and SWAP. Shafag Asiman is a giant gas condensate prospect
with similar geological setup and scale to Shah Deniz. If successful Shafag Asiman
would utilize the Southern Gas Corridor ullage after Shah Deniz declines in the late
2020s.
Finally, in the last few years we have been very active in west Africa, accessing
around 80,000 square kilometres acreage with resource potential of eight billions
barrels of oil equivalent.
24Long-term growth
Oil growth underpinned
Gulf of Mexico North Sea
Thunder Horse Mad Dog Atlantis Na Kika Operated by others Shetland Central North Sea Aker BP Operated by others
E&A options E&A options
500 mboed 300 mboed
0 0
2010 2015 2020 2025 2010 2015 2020 2025
Angola Azerbaijan oil
Block 18 Block 31 Operated by others ACG Shah Deniz condensate E&A options
250 mboed 150 mboed
0 0
2010 2015 2020 2025 2010 2015 2020 2025
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 25
Now let me try to bring this together and look through the regional lens. First our
key oil regions, then our gas regions.
This slide is similar to what we showed in Baku in 2016.
Price leveraged, high margin oil businesses.
They are expected to generate over 40% of underlying pre-tax free cash flow in
2018. And are expected to increase by around 50% by 2025.
Material growth in the North Sea – potential for close to 50% higher production in
2025 than we have today.
ACG in Azerbaijan is producing under current licenses to 2049.
And we are managing the decline in Angola, while working with the government
to progress opportunities.
25Long-term growth
Growth in the Gulf of Mexico
Gulf of Mexico
Thunder Horse Mad Dog Atlantis Na Kika Operated by others E&A options
500 mboed
▪ Top producer in the Gulf
▪ Young reservoirs – 12% of 11bn boe of net
hydrocarbon in place recovered
▪ New ways of working and technologies like 4D
OBN1 and Wolfspar™ have unlocked 1bn boe
HCIIP2 in Thunder Horse, and further infill and
ILX3 opportunities across all hubs
▪ Production growth to >400mboed underpinned by
high quality infill opportunities, field expansions
and additional capacity through Mad Dog Phase 2
0
2010 2015 2020 2025
(1) Ocean bottom nodes (2) Hydrocarbons initially in place (3) Infrastructure led exploration BP UPSTREAM INVESTOR DAY AND FIELDTRIP 26
Our plans for the Gulf of Mexico have improved materially since Baku. Up around
100 thousand barrels of oil equivalent per day in 2025.
Today we are the number one producer.
It remains a young resource base, with only 12% of net hydrocarbons in place
produced.
Through technology, productivity and exploration success – we have upgraded our
resources at Mad Dog, Nakika and Atlantis. And most impactfully, and most
recently at Thunder Horse – where the application of seismic techniques like
Ocean Bottom Nodes, Full Waveform Inversion, and new ways of working, has
unlocked an additional one billion barrels of oil in place, gross. That’s
Transformation in action – creating billions of dollars in value.
In summary we now see the potential for the GoM to run at around 400 thousand
barrels of oil equivalent per day through the middle of the next decade.
And exploration offers further upside.
Murray and Starlee will tell you more about our oil plans later.
26Long-term growth
Gas growth underpinned
Domestic pricing1 Hub pricing1 International LNG1
Oman, Egypt gas, Russia, India Algeria, Azerbaijan (Shah Deniz gas), Australia, Indonesia, Mauritania & Senegal,
BPX Energy gas Trinidad
Base Major projects E&A options Base Major projects Base Major projects E&A options
700 mboed 700 mboed 700 mboed
0 0 0
2010 2015 2020 2025 2010 2015 2020 2025 2010 2015 2020 2025
(1) Total production for gas producing regions BP UPSTREAM INVESTOR DAY AND FIELDTRIP 27
Turning to our gas business. Let’s start with how we think of it.
First, we believe in the gas. We believe in its environmental promise. We believe
in the long-term demand potential. And therefore, we believe that making long life
investments in gas makes sense.
Second, there is plenty of gas in the world. In order to compete, you have to be in
the lowest cost, highest margin gas – what we call advantaged gas.
Third, we believe in a diversified gas portfolio. This is because gas pricing tends to
be cyclical. And so – not betting on any one type of gas offers optionality and
resilience. We think through the lenses of domestic, hub and international LNG,
where we are reasonably balanced.
Fourth, we increasingly believe value moves up and down the chain over time.
Having capability and positions across that chain - not only producing equity gas,
but establishing positions in pipelines, regas, and importantly supply and demand
sinks for LNG - can create a lot of value and optionality. Alan will discuss this more
in the breakout.
In terms of portfolio – we feel quite good about what we have built. A long-life,
high quality, growing portfolio in gas.
Strong domestic growth over the next few years in Egypt, Oman and Russia – all
with competitive terms. We have doubled production in Egypt. Atoll is performing
better than expected. The Taurus Libra project delivery was strong, although the
reservoir is less than anticipated. The Giza, Fayoum and Raven projects remain on
track.
Gradual growth in the hubs as Shah Deniz 2 fills up the pipeline across Europe.
And stable LNG out to 2025 through continued exploration success in Trinidad,
build out of Tangguh, and by the middle of the next decade strong growth from a
27highly competitive Mauritania and Senegal.
William will share more with you later.
27Long-term growth
Diversified portfolio – resilient with price upside
2025 production 2025 pre-tax operating cash flow
Hydrocarbon Geographical Price Fiscal
production split leverage regime
Liquids Gas US Europe Middle East Fixed price Gas Tax & royalty
South America Africa Oil linked gas Oil Production sharing contract
Asia Other Other
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 28
These businesses help create our balanced and diversified portfolio.
Balanced in oil vs gas.
Balanced in fixed price revenues versus access to price upside.
The long life, steady cash flow pieces of the portfolio create real resilience and go
a long way to funding the dividend – even in a low price world.
And it’s a diversified portfolio – in terms of geography but also in terms of fiscal
take.
As the past few weeks have reminded us - the future is uncertain. We like not
having exposure to any one particular area or theme.
28Long-term growth
High-quality growth capacity to 2025
2025 growth scenario
▪ Oil price of
Higher returns
$55/bbl Brent real1
▪ Constant organic capital
frame of $13-14bn p.a. Capability to grow pre-tax
free cash flow 40-50% vs
▪ Existing resource base
20212
(1) Brent 2017 real
(2) Pre-tax free cash flow proxy = underlying RCPBIT+DD&A+EWO-organic capital expenditure BP UPSTREAM INVESTOR DAY AND FIELDTRIP 29
The strength of our portfolio, the quality growth options, and our execution track
record, provide us increased confidence in the capability to grow beyond 2021.
Grow returns and grow free cash flow.
Over the coming years, we have a number of choices to make that will determine
our exact shape in 2025. Choices that will be made within the BP Group – where
our goal is to maximise long term shareholder value.
To help put some numbers to the quality of the portfolio and the potential - let me
give you one scenario.
With our current resource base, and within our current capital frame - we have the
capability to increase pre-tax free cash flow by a further 40 to 50% between 2021
and 2025. At $55 per barrel real. All while improving returns.
Any exploration success or new access gives us the option to further high grade.
And the potential to extend growth beyond 2025.
For clarity – this is not a promise – this is not a target. It is simply a scenario which
demonstrates – we hope – the depth, quality and capability of our portfolio.
29Closing
Upstream
Upstream
key messages
key messages
Continued track record of delivery
1 ▪ continued safety progress
▪ 19 projects delivered on average under budget and ahead of schedule 1
▪ 45% reduction2 in unit production costs
▪ base decline below 3-5% guidance
Free cash growth underpinned
2 on plan for $14-15bn3 in 2021
Improved growth capacity
3 ▪ upgraded resource base, high quality investment opportunities
▪ capability to grow 2025 pre-tax free cash flow3 by 40-50% vs 2021
Transformation building momentum
4 tangible impact, more to come
(1) Since 2016
(2) 2018 estimate, compared with 2013
(3) Pre-tax free cash flow proxy = underlying RCPBIT+DD&A+EWO-organic
capital expenditure, at $55/bbl Brent 2017 real BP UPSTREAM INVESTOR DAY AND FIELDTRIP 30
So, let me wrap up with where I started. The key messages for the next two
days.
First - our “continued strong track record of delivery”. Doing what we said we
would. And doing so competitively;
Second - we are on plan to deliver the 2021 free cash flow growth target. We
have a high degree of confidence;
Third – we have improved both our capacity to grow, and the quality of that
growth. We have the capability, from our current resource base, to increase free
cash by 40 to 50% from 2021 to 2025 - under the current capital frame. This cash
flow growth will come with increasing returns;
Fourth and finally - we are transforming our business. Our teams want it. The next
generation will demand it. Our shareholders deserve it. And it is now hitting the
bottom line. We have momentum and see enormous opportunity.
Thank you. Let me turn it over to you for some questions.
30Track
Closing
record
Oman 2018
Upstream
Investor Day
& Fieldtrip
Q&A
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 31
31Closing
What makes BP Upstream distinctive
Resilient portfolio
Competitive execution
Transformation
BP UPSTREAM INVESTOR DAY AND FIELDTRIP 32
What makes BP’s Upstream distinctive?
Before we move to the Q&A I’d like to address a question that has been asked of us
– ‘what makes BP Upstream distinctive’.
We believe that there are three things that are distinctive about BP’s upstream
business
The first is what we see as a resilient portfolio.
There’s no question there is a major energy transition underway. The pace of change
is unprecedented and brings about significant uncertainty for our sector in particular.
Instead of retreating from that uncertainty - we actually see opportunity and are
embracing it.
In that context we like that fact that we have balance and diversification in our
portfolio. We are not reliant on single big bets, such as LNG or the Permian. We
believe that our advantaged oil and gas focus means we are robust in the downcycle
yet at the same time still retain leverage to capture upside.
The second is competitive execution.
This has not always been our strong suit. I don’t think people would have said a
decade or more ago that we could be relied on to execute well. They might have said
we were commercially innovative, or a great explorer – but I am not sure they would
have said we were a strong operator.
You could argue that we have improved, and are where we are today, due to a hard
lesson learned nearly a decade ago. That learning will stay with us; it is in our DNA.
32From there, we built our functional model. We are organised in a way that is about being the best at what we do, wherever we work. And I think we now have the capability to take on almost any oil and gas challenge. And there is evidence that our competitive execution is being delivered and it is feeding through to the bottom line of the company. Third and finally, is transformation - our deeply held belief that we must transform. The people inside our company want it. The next generation will demand it. And you, our shareholders, deserve it. We believe there is still enormous inefficiency – and hence opportunity - in the sector. It has never been truly competitive. We are transforming through - • Agility in our organisation; how we work can be so much lighter, faster, and far more engaging; • Harnessing the world’s digital and technological progress; and, • Changing our Mindset’ so we act and behave like a truly competitive, margin focused industry. Our agenda is delivering – I described the value this morning. And we see enormous opportunity remaining. Who transforms first will be a real source of distinction……we’re on it !
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